Counties have to figure hospitals’ values before collecting tax revenues

The sale of the hospitals in Haywood, Jackson and Swain counties to Duke LifePoint Healthcare next year will bring an unexpected windfall for local coffers come tax time.

The hospitals now are non-profits, so they don’t pay property taxes. But the buyer, Duke LifePoint, is a for-profit hospital system.

Once the hospitals come under Duke LifePoint ownership, they will be subject to property taxes, reaping a tidy sum for Haywood, Jackson and Swain counties.

In addition to the hospitals themselves, the urgent care centers, medical office buildings and medical equipment owned by the hospitals will also become taxable — those assets are all included in the sale to Duke LifePoint.

But sorting out the exact tax value of all the hospital holdings will take some work. At this stage, rough estimates were the best that the tax administrators of each county could come up with (see chart).

“Right now, it is too early to tell,” said Haywood Tax Administrator David Francis.

One complication is simply figuring out what parcels and buildings will in fact change hands to Duke LifePoint, and that won’t be known until after the sale goes through and the new property deeds are recorded.

In Jackson, it’s challenging enough to figure out exactly what property is in the hospital’s name currently.

“It’s just a smorgasbord of names and ownerships,” said Bobby McMahan, Jackson Tax Administrator. “We’ve got all these little giblets over the last 50 years that were bought from all the neighbors there and pieced together.”

McMahan said the county tax office will closely monitor the sale to make sure all the assets that change hands are indeed recorded under Duke LifePoint’s name. If something is dropped in the shuffle, the county would inadvertently leave property tax dollars on the table.

Ultimately, how much Duke LifePoint will owe in property taxes depends on the market value of the land and buildings — determined by a real estate appraisal.

Even though the hospitals are currently exempt from property taxes, the county still goes through the motions of appraising them every few years and assigning them a dollar value on the property tax rolls.

Incidentally, the hospitals are selling for less than the market value on the county tax rolls. So either Duke LifePoint is getting a good deal or the counties have them appraised too high.

But it can be tough to gauge what a hospital is worth.

“A hospital is an odd bird anyway. You can’t just go down the street and get a comp sale,” McMahan said.

At some point, Duke LifePoint could protest the appraised value assigned by the county, but Duke LifePoint can’t use its own purchase price as justification.

“You can’t use your own sale price as a comp. They would have to come in with evidence,” Francis said. “There is a formula out there for what a hospital is worth based on the number of beds.”

Then throw in square footage, construction quality, building condition, land values in the area. “All those factors are computed to come up with the value of the hospital,” Francis said.

Francis said the real trick, however, will be calculating the value of all the medical equipment, devices and machinery that go along with sale. None of the counties keep a good inventory of the hospitals’ equipment right now.

“They know it is exempt, and we know it is exempt, so how much effort are we going to put on something we all know is exempt?” McMahan said.

Swain County Manager Kevin King said his county doesn’t even ask for a list of equipment inside Swain Medical Center because there is no point since it is all tax free.

There’s also equipment in the satellite medical offices to be accounted for.

In Haywood, that includes two urgent care centers, an outpatient surgery center, a hospice center — even the exercise equipment in the health and fitness center.

The equipment inventory would extend to doctors’ offices that have been bought out by the hospitals in recent years.

Private physician practices pay property taxes on their medical equipment. But those that have been bought by the hospital come under the nonprofit status.

Equipment that used to be on the tax rolls of private practices has come off the tax rolls as the hospitals have bought up physician practices, Francis said.

Now, the county has to move that equipment back onto the tax rolls again.

“We have historical data that we can jump start from by asking, ‘Do you still have this piece?’ and ‘Have you bought something since you came under the hospital and if so what is that worth?’ ” Francis said.

The counties won’t waste any time collecting their first year’s windfall.

The sale is slated to go through by spring. If it does, Duke LifePoint will be on the hook for property taxes for all of 2014 — as long as the property deeds and titles are transferred by July 1, according to state statute.

“They can be held accountable for the entire year’s tax bill,” McMahan said.

What will each county get?

When the hospitals in Haywood, Jackson and Swain change from non-profit to for-profit ownership, they will start paying local property taxes.

This chart shows the current tax rate of each county, the appraised value of hospital holdings, and what the county would get in taxes annually.

The appraised value listed includes all the related medical offices, facilities and equipment currently listed under the hospitals’ names, which will be transferred as part of the sale.

These are only rough estimates at this point and will be refined in coming months.

The Naturalist's Corner

I had originally intended to spend today (Monday, Feb. 16) doing a couple of short surveys for the annual Great Backyard Bird Count. But Sunday morning amid more and more (and more and more dire) weather forecasts warning of some pretty heavy winter weather coming our way I began to contemplate counting Sunday instead. Around 9 a.m. Sunday I peeked out the downstairs window. Well, in my yard were 17 wild turkeys. It looked like a large group of jakes and gobblers.